Monday, April 18, 2016

ECB Likely to Retain Dovish Rhetoric; BI to Hold Off Further Easing in the Upcoming MPC Meeting

18 April 2016


Rates & FX Market Weekly

ECB Likely to Retain Dovish Rhetoric; BI to Hold Off Further Easing in the Upcoming MPC Meeting

Highlights

¨   Global Markets: With April FOMC meeting just around the corner, expect avid attention towards the various Fedspeak (Dudley, Kashkari & Rosengren) early in the week ahead alongside the negative outcome from the oil producers’ meeting. Flash manufacturing PMI is expected to stabilise in April, although a strong print is unlikely to materially influence Fed’s expectations; stay mild overweight USTs. The highlight in EU will be the ECB meeting due on April 21, where we call for no change in monetary policies, yet watch ECB’s Draghi post-meeting conference to gauge the bank’s stance towards more aggressive actions; stay mildly bearish EUR. In the UK, employment and retail sales are expected to improve although Brexit fears may continue to weigh on UK economic prints prior to the referendum; stay neutral GBP, with GBPUSD likely to trend between 1.40-1.45 over the near term. Over in Japan, investors remain keen on the potential impact of strengthening JPY on Japanese exports which could further dull the economic outlook and cement the case for further fiscal stimulus package from the Abe administration; commitment towards the G7 bloc is likely to remain a hurdle for Japan to engage in direct intervention on JPY over the near term, supporting our neutral stance on JPY. In Australia, expect RBA minutes and Governor Stevens’ speech to reflect cautiousness towards recent AUD strength; we maintain our preference towards short-dated ACGBs, underpinned by our view for another 25bps rate cut in 2016.
¨   AxJ Markets: Lingering optimism from last week heavy and resilient Chinese data – stable GDP, rising  IP, FAI and retail sales alongside higher CPI - could continue to ease near term expectations for PBoC to reduce rates. We maintain our neutral duration view on CGBs, with the challenging global outlook and the deepening onshore bond market to remain supportive of CGB market; remain constructive on short dated CGBs as yields continue to climb. Meanwhile in South Korea, weaker support for President Park’s Saenuri party may place the onus on BoK to reduce policy rates in 2Q. We see a higher likelihood for BoK’s rate cut to be in May rather than Tuesday’s meeting, with the 4 incoming BoK board members broadly leaning towards the dovish end; maintain mildly bearish KRW. Elsewhere, a modest rebound on Singapore’s NODX is likely to be in line with trends seen in the regional market, but unlikely to provide much support for SGD following MAS neutral policy stance; expect upside pressure on USDSGD to be sustained over the week ahead as investors claw back earlier optimism, with short dated SGS likely to bear the brunt of the weaker SGD. In Malaysia, MYR is likely to take cues from oil prices in the week ahead following the producers’ meeting, while CPI remains elevated on base effects where investors remain cognisant of the pending change in BNM’s leadership; stay neutral MYR at current levels. Turning to Thailand, demand for the THB16bn 10y ThaiGB auction is likely to remain strong given the sparse supply on short dated ThaiGBs alongside attractive real yields vis-à-vis its EM AxJ peers, which could continue to support resilience on the THB over the near term; keep a short duration tilt on ThaiGBs. BI reconvenes on April 21, where we opine for a status quo decision as the bank signaled prudence in the last meeting, despite a favourable March CPI print; stay neutral IDR, with movements in the week ahead tied to oil prices as well. In India, trade data may deliver a positive surprise in line with regional trends, although the economy remains vulnerable to higher oil prices which may limit RBI’s ability to support economic and credit growth; stay neutral INR.
   

Weekly Positioning


Rates
FX
Overweight


Mild Overweight
UST, C.EGB, ACGB, GSec

Neutral
GILT, HKGB, MGS, SGS, KTB, P.EGB, CGB, IndoGB
USD, SGD, HKD, INR, GBP, MYR, IDR, JPY, AUD
Mild Underweight
ThaiGB
EUR, KRW, CNY, THB
Underweight
JGB


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